On October 14, 2022, Justice Chan of the New York County Commercial Division issued a decision in Park Royal I LLC v. HSBC, Index No. 657329, holding that a certificateholder’s failure to have Cede & Co. authorizations when it commenced an action was a curable defect, explaining:
On the prior motions to dismiss, defendant moved to dismiss plaintiffs’ complaints for lack of standing, arguing that plaintiffs are “Certificate Owners” rather than “Certificateholders” and the former are contractually restrained from bringing actions directly. In this regard, Section 6.06(d) of the pooling and servicing agreements (PSAs), the negating clause, provides that “the rights of the respective Certificate Owners of such Certificates shall be exercised only through the Depository and the Depository Participants.” Plaintiffs countered that their standing defect was cured since they obtained authorizations to sue from Cede & Co., the Depository and registered holder of the RMBS certificates. The issue presented in the prior motions was whether plaintiffs, as RMBS certificate owners, had cured their standing defect by obtaining Cede & Co.’s authorization after they commenced the actions. . . .
In the Original Decision, the court denied the aspect of defendant’s motions to dismiss the complaints for lack of standing and held that the post-filing authorizations from Cede & Co. cured plaintiffs’ standing defect that is caused by the negating clause, even in the absence of a contractual provision expressly allowing such authorization. In addressing the statute of limitations issue raised by defendant, the court found that because the standing defect is curable and in fact cured, the plaintiffs’ status has
changed and their actions are maintainable. As for the cases cited by defendant holding that a plaintiff cannot rely on the relation-back theory to cure a lack of standing, the court found these cases distinguishable and inapplicable.On this motion to reargue, defendant asserts that the court misapprehended the law in denying the motions to dismiss by overlooking controlling case law holding that an action commenced without standing is not validly commenced and must be dismissed because subsequent events that confer standing do not relate back to a complaint filed without standing
. . .
[T]he court finds that defendant has failed to show that this court overlooked, misapprehended the relevant facts, or misapplied the law so as to warrant a grant of re argument. Defendant tries to frame the issue as a different one that is not present in this action: when plaintiffs lack of standing is inherently incurable, whether a subsequent assignment that conferred standing can relate back to the moment plaintiff commenced the actions. The cases relied on by defendant, which are not previously cited, are inapposite since unlike here, the plaintiffs in those cases were asserting claims even though they lack beneficial or legal interest in such claims and thus the lack of standing was simply not curable. In contrast, here, because plaintiffs are the beneficial owners of the certificates whose lack of standing was based solely on the negating clause in the PSAs, the defect in their standing has been found to be curable.
Defendant also incorrectly relies on a line of condition precedent cases. As the court found in the Original Decision, those cases concern situations where the lack of standing has been found incurable such as when plaintiffs failed to fulfill a condition precedent to plaintiffs’ right to bring any legal action. It is settled that a plaintiff’s lack of standing when it fails to satisfy the pre-suit condition cannot be cured, so that any post-filing satisfaction of that condition cannot relate back. The standing problem with the failure to satisfy a condition precedent to litigation is that plaintiff lacks a cause upon which to sue, and thus no legally cognizable remedy is available when plaintiff files the lawsuit. But this is not the case here.
As emphasized in the Original Decision, Cede & Co., as a street name, has only book entry interest but no actual interest in those RMBS, while plaintiffs are the real party in interest as beneficial owners. Given that section 6.06(d) of the PSAs provides that certificate owners can exercise their rights through the depository, the provision negates their ability to directly bring an action. This defect in standing, caused by a negating clause, does not eliminate plaintiffs’ cognizable stake in this action or the court’s jurisdiction to hear it. As such, the standing defect is curable and could be cured retroactively by obtaining the registered holders’ authorization to sue.
(Internal quotations and citations omitted) (emphasis added).